For all our clients and prospects, understanding industry metrics is an important step to gaining a competitive advantage along with an improved financial performance and valuation. Too often managers focus purely on financial metrics either at the department or corporate level. Financial metrics are trailing metrics that tell us how a company has performed on a historical basis. By comparing recent financial performance to the historical averages and trends, one can identify problems or areas of concern; however, it is often too late to recuperate losses after the financials have been delivered.
In this blog, you should consider what non-financial metrics can help identify problem areas or issues on the horizon for your business, this will allow you and your management team to address these areas in advance of financial reporting timelines. The challenge for you is to determine what data and metrics help drive your financial results.
What Data Matters? What Data Do You Track?
Financials matter. Financial performance is the outcome your business drives from all the activity you do on a day-to-day basis. When we first meet prospective clients, we ask them to provide us with any management reports they review on a regular basis. Typically, with smaller businesses, the only data we receive are financial statements. Other clients who have key performance indicators (KPIs) are often focused on financial metrics such as sales, days receivables outstanding, gross margin, overhead costs, etc.
We want you to consider other metrics, such as data points in your business that can improve not only financial performance but also how your financial results are determined on a weekly and monthly basis in advance. This will allow you to evaluate your progress and identify areas for concern or improvement.
Recently, one of our co-founders was having a discussion with his 13-year old son regarding his son’s training for the upcoming hockey season. His son had set some goals for himself (similar to a business’ budget) and had been working out regularly to add strength and weight. One evening after a workout, our co-founder asked him about his workout progress and wanted to review his training book.
Upon inspecting the training book, his son had three workouts outlined, but none of the daily tracking was filled out. “Have you improved?” our co-founder asked, “I think so”, his son replied. In his son’s case, he didn’t know if his times, reps or sets were improving as he wasn’t tracking his progress. This may lead to the boy thinking that he is on the right track, but the confidence of that feeling has no data to support it. When he goes for try-outs and looks to accomplish his goal, it is too late to alter his program or increase the intensity because his ‘financial results’ have already been delivered. Your business is no different. Neither is ours.
You likely have monthly, quarterly or annual targets / goals you want to achieve. The key data you track in order to achieve these goals should be tracked in regular, short-term time frames to ensure you are not surprised or making excuses for why a goal wasn’t achieved. So, what data matters? Your business is unique and how you want to drive your business forward is tied to what you want out of your business. Understanding what is important to your business model and what data you should be tracking can take some time, but it is an important first step. Your KPIs, Scorecard, Metrics or whatever you call these, should follow a few rules:
For example, most prospects and clients have revenue targets they want to achieve. Revenue is driven by sales to customers/clients. What drives sales? In our business we gain clients predominantly through two means – referrals from accountants, lawyers, past clients and other business associates; and through our direct marketing initiatives. Several metrics that are important for us include the number of referred clients and number of marketed clients. But what drives these numbers? Meetings. We don’t gain a client without meeting with them at least once beforehand, it’s just not in the nature of our business. We get meetings through incoming or outgoing phone calls and emails. We also increase our potential client-base through indirect marketing like this blog and our newsletters.
What metrics would you need to know if you’re on track? The metrics we need to know include how many calls, emails and meetings we need to reach our goal of clients so that we can meet our financial targets.
For our business the following metrics matter:
Your business may gain clients in a different fashion, but there are metrics that drive sales. Understanding your business and your unique metrics is crucial to achieving results.
Did You Notice Anything in Our Example? MEASURABLE!
Your data and metrics need to be quantifiable and measurable. A number serves as a clear and quick to understood data point.
“I’m going to call prospects this week” typically delivers lower results than “I’m going to call 100 prospects this week”. Numbers matter as they:
There are many other benefits as well, but the ultimate benefit for your business should be the results!
I DON’T HAVE ANY DATA!
Everyone has data, you just might not be tracking it and reviewing it actively. Data collection takes time, but more importantly commitment.
Do you know who your customers and prospects are? Probably yes.
How do you keep their information? Excel, CRM, notebook? Not just their billing and mailing information, but who you contact, how you reach them and the conversations you’ve had?
How many proposals have you made?
What’s your win rate?
While you may not formally track these numbers (yet), you likely know them or have them somewhere even if it’s in your head.
IT TAKES TOO MUCH TIME!
You’re busy, we understand that. Time is a limited resource for all of us and adding more ‘tasks’ to our to-do lists is not the objective here. The objective for finding critical data points to drive growth is to help obtain better results. Initial set-up may take some time, but you should soon be saving yourself more time by driving accountability and teamwork while solving issues that are identified by your data points. The right system for your business should focus your time on issues and problems that will drive better results. These data points help maintain focus on the real priorities and problems while opening up communication with staff and leading to more effective and goal-driven productivity.
Do you need help in developing a system for your company and industry to deliver results, including identifying both financial and non-financial tracking metrics? Whitehorn has the industry expertise to determine the KPIs that your company should be focusing on, give us a call or send us an email if you need any assistance, as we would love to help you!
